Fiscal policy

It is one of the three main government policies to achieve macroeconomic policy objectives. Fiscal policy refers to the tax and spending decisions of government. It main aims is to influence aggregate demand. Aggregate demand is made of consumer expenditure, investment, government spending and net exports. To increases AD by fiscal policy which is called reflationary, it can be done by reducing tax, or increasing government spending.
There are two types of tax, direct tax which is the tax on income and indirect tax which is tax on goods and services. Direct tax is also a progressive tax whereas tax at a higher percentage on income of the rich. Indirect tax which largely is regressive tax ( tax at a greater percentage on income of the poor) . By reducing these two types of taxation, comsumper expenditure tends to increase, as consumers might have more disposable income and buy more goods with the same amount of money in hand.
Government spending is made up of capital expenditure ( roads, hospitals), current expenditure (running of public services ), debt interest payment ( interest payment made to debts holder), transfer payment (money transfer from taxpayer to those received the benefits). By increase government spending, people might benefits from them in term of money or services and tends to have greater purchasing power, therefore, increase AD.When there is a rapid increase in AD, but aggregate supply did not increases the output at the same speed, government might use fiscal policy to reduce AD, thus prevent inflation.
When there is a budget deficit (Government spending is more than revenue of taxation), government may use fiscal policy to reduce budget deficit by reduce government spending or increase tax.